The mayor of Venice was among 35 people arrested and accused of corruption in relation to a multi-million pound construction project to save the lagoon city from being inundated by high tides and storm surges.

In the latest of a series of recent scandals to shake Italy’s already tarnished political and business worlds, Giorgio Orsoni, who was elected mayor in 2010, was arrested while Giancarlo Galan, a former president of the Veneto region, was placed under investigation.

Mr Orsoni, from the centre-Left Democratic Party, was accused of having received illicit funds from the Consorzio Venezia Nuova, the consortium behind the construction of the project, which he then used in his campaign to be elected mayor.

In a statement, he denied the allegations, saying they were “barely credible”.

Mr Galan, an MP from the centre-Right Forza Italia party of Silvio Berlusconi and a former culture minister, was accused of having received 200,000 euros (£163,000) in return for fast-tracking the approval of contracts. He also denied the allegations.

The arrests were the result of a three-year investigation by the Guardia di Finanza, Italy’s tax police, into alleged bribery, kick-backs, extortion and money laundering.

Those arrested, including businessmen and a retired police general, are suspected of embezzling at least 20 million euros (£16 million) destined for the Moses barrier and hiding the money in bank accounts abroad, including in the tiny independent republic of San Marino.

Giovanni Mazzacurati, the former head of the construction consortium, was described by prosecutors as the “mastermind” behind the alleged corruption.

He and others are accused of creating a slush fund with which to bribe politicians, who then used the money for their electoral campaigns as well as for personal gain, said Carlo Nordio, a prosecutor in the case.

The Moses project involves building 78 giant steel gates across the three inlets through which water from the Adriatic surges into Venice’s lagoon.

The 300-tonne hinged panels will be fixed to massive concrete bases dug into the sea bed and will be raised whenever a dangerously high tide is predicted.

Movable underwater panels emerge from the lagoon during the first official test, in October 2013, of Venice movable barriers designed to prevent severe flooding in Venice, Italy (Luigi Costantini/AP)

The ambitious scheme is designed to solve the centuries-old problem of how to save Venice from slipping beneath the waves, at a time when the high tides that regularly swamp the city have been exacerbated by rising sea levels and more unpredictable weather related to global warming.

But it has been dogged by long delays, concerns about the impact on Venice’s fragile lagoon ecosystem and cost overruns.

Inaugurated in 2003 by Silvio Berlusconi, the then-prime minister, it was due to be completed by 2012 but is now expected to be operational in 2016.

It has so far cost more than five billion euros.

Moses - ‘Mose’ in Italian - is both an allusion to the Old Testament story of how Moses parted the waves of the Red Sea during the Israelites’ exodus from Egypt and a neat acronym for the project’s name, Modulo Sperimentale Elettromeccanico.

In July last year, police carried out dawn raids around the country on businesses involved in the Moses project.

More than 500 officers raided 140 offices from Venice to Tuscany and Rome, as part of a probe into the alleged rigging of contracts.

Italy has been hit by a series of corporate and political scandals recently, the most high-profile involving allegations of corruption in the awarding of contracts for work on Expo 2015, a world fair to be held in Milan next year.